SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Check One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from ________________ to ________________
Commission file number 0-16577
CYBEROPTICS CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1472057
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
5900 Golden Hills Drive, Minneapolis, Minnesota 55416
(Address of principal executive offices)
(612) 542-5000
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes _X_ No__
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
At April 30, 1997, 5,200,499 shares of the issuer's Common Stock, no par value,
were outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
MARCH 31, DEC. 31,
1997 1996
(UNAUDITED)
------- -------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,898 $ 3,453
Marketable securities 18,689 21,356
Accounts receivable, net 4,838 5,031
Inventories 4,524 3,768
Other current assets 1,215 1,635
------- -------
Total current assets 32,164 35,243
Marketable securities 15,967 12,500
Equipment and furnishings, net 2,449 2,495
Capitalized patent costs, net 80 78
------- -------
Total assets $50,660 $50,316
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,236 $ 1,191
Income taxes payable 508 233
Accrued expenses 1,247 1,424
------- -------
Total current liabilities 2,991 2,848
Commitments and Contingencies
Stockholders' equity:
Preferred stock, no par value, 5,000 shares
authorized, none outstanding
Common stock, no par value, 25,000 shares
authorized, 5,194 and 5,612 shares issued
and outstanding, respectively 36,821 37,209
Retained earnings 10,848 10,259
------- -------
Total stockholders' equity 47,669 47,468
------- -------
Total liabilities and stockholders' equity $50,660 $50,316
======= =======
</TABLE>
SEE THE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
THREE MONTHS ENDED MARCH 31,
1997 1996
------ ------
Revenues $7,080 $8,513
Cost of revenues 3,374 3,909
------ ------
Gross margin 3,706 4,604
Research and development expenses 1,426 1,301
Selling, general and administrative expenses 1,909 1,813
------ ------
Income from operations 371 1,490
Interest income 493 571
------ ------
Income before income taxes 864 2,061
Provision for income taxes 275 640
====== ======
Net income $ 589 $1,421
====== ======
Net income per share $ 0.11 $ 0.24
====== ======
Weighted average common and
common equivalent shares 5,440 5,932
====== ======
SEE THE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
CYBEROPTICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
THREE MONTHS ENDED MARCH 31,
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 589 $ 1,421
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 219 132
Provision for losses on inventories 32 61
Changes in operating assets and
liabilities:
Accounts receivable 193 2,107
Inventories (788) 158
Other current assets 420 (331)
Accounts payable 45 349
Income taxes payable 275 13
Accrued expenses (177) (687)
-------- --------
Net cash provided
by operating activities 808 3,223
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of marketable securities 21,500 5,146
Purchases of marketable securities (22,300) (10,500)
Additions to equipment and furnishings (159) (318)
Additions to patents (16) (44)
-------- --------
Net cash used by investing
activities (975) (5,716)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 173 242
Repurchase of common stock (561) -
-------- --------
Net cash provided (used) by financing
activities (388) 242
Decrease in cash and cash equivalents (555) (2,251)
Cash and cash equivalents - beginning
of period 3,453 8,718
-------- --------
Cash and cash equivalents - end of period $ 2,898 $ 6,467
======== ========
SEE THE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
CYBEROPTICS CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. INTERIM REPORTING:
The interim financial statements are unaudited; however, in the opinion of
management, the interim statements include all adjustments, consisting only of
normal recurring adjustments, necessary for the fair statement of the results
and balances for the interim periods.
The results of operations for the three-month period ended March 31, 1997 do not
necessarily indicate the results to be expected for the full year. These
statements should be read in conjunction with the Company's financial statements
and notes thereto, contained in the Company's Annual Report to Stockholders for
the year ended December 31, 1996.
The year-end balance sheet data was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles.
2. STOCK REPURCHASE:
In June 1996, the Company announced that its board of directors authorized the
repurchase of up to 500,000 shares of CyberOptics' common stock. In 1996, all
500,000 shares were repurchased through open market purchases, block
transactions or privately negotiated purchases. In December 1996, the Company's
Board of Directors authorized the repurchase of up to an additional 500,000
shares of common stock. During the first quarter of 1997, the Company
repurchased 41,000 shares of common stock under the second authorization.
Repurchased shares will be utilized for employee compensation plans and other
corporate purposes.
3. INVENTORIES (IN THOUSANDS):
March 31, Dec. 31,
1997 1996
(unaudited)
-------- --------
Raw materials $3,194 $2,522
Work in process 890 736
Finished goods 440 510
-------- --------
Total inventories $4,524 $3,768
======== ========
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CyberOptics Corporation designs and manufactures intelligent sensors and systems
for high-precision, non-contact dimensional measurement and process control.
Utilizing proprietary laser and optics technology combined with advanced
software and electronics, the Company's products enable manufacturers to
increase operating efficiencies, product yields and quality by measuring the
characteristics and placement of components both during and after the
manufacturing process. The Company sells its products worldwide through a
combination of direct sales staff and independent distributors.
The following is management's discussion and analysis of certain significant
factors that have affected the Company's results and financial position during
the periods included in the accompanying financial statements. This discussion
should be read in conjunction with the financial statements and associated
notes.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. The following Management's Discussion
and Analysis contains "forward looking statements" within the meaning of federal
securities laws which represent management's expectations or beliefs relating to
future events, including statements regarding the level of selling, general and
administrative and research and development expenses, taxation levels, the
sufficiency of cash to meet operating expenses and the ability to continue to
price foreign transactions in U.S. currency. These, and other forward looking
statements made by the Company, must be evaluated in the context of a number of
factors that may affect the Company's financial condition and results of
operations, including the following:
-- The cyclical nature of capital expenditures in the electronics
industry;
-- The dependence of such operations on orders from several large
OEM customers;
-- The dependence of the Company's manufacturing on outside
contractors and suppliers;
-- The degree to which the Company is successful in protecting
its technology and enforcing its technology rights in the
United States and other countries;
-- The dependence of the Company's operations on several key
personnel;
-- The speed of changes in technology in the microelectronics
manufacturing industry from which most of the Company's sales
are derived;
-- The significant proportion of the Company's revenue that is
derived from export sales;
-- Competition for the functions that the Company's products
perform by larger "vision" companies and by other optical
sensor companies;
-- Quarterly fluctuations in operating results caused by the
timing of shipments and other factors not entirely within the
Company's control.
These and other factors that may affect future operations are discussed in more
detail in Exhibit 99 to this Form 10-Q.
RESULTS OF OPERATIONS
The table below lists certain financial data expressed as a percentage of
revenues for the periods ended March 31, 1997 and 1996.
Three Months Ended
March 31,
1997 1996
---------- ----------
Revenues 100% 100%
Gross margin 52% 54%
Research and development expenses 20% 15%
Selling, general and
administrative expenses 27% 21%
Income from operations 5% 17%
Net income 8% 17%
REVENUES
Revenues decreased 17% to $7.1 million during the three month period ended March
31, 1997 compared to $8.5 million for the comparable period in 1996. The
decrease in revenues is the result of lower levels of shipments of both end user
systems and OEM sensors. The three month period ended March 31, 1996 marked the
last quarter in which the Company's revenues were positively affected by the
rapid expansion of capital spending by the global surface mount technology
market, the primary market for the Company's products. This expansion of capital
spending by the electronics industry, which began in 1995, slowed significantly
in the second half of 1996 and has had a significant impact on the revenue
levels of the Company. Since the low point in the third quarter of 1996,
revenues have increased steadily, and in comparison to the fourth quarter of
1996, revenues for the three month period ended March 31, 1997 increased 6%.
Sensor revenues decreased 16% to $4.8 million during the three months ended
March 31, 1997 from the comparable period in 1996, but increased 20% when
compared to the fourth quarter of 1996. Sensor revenues are primarily dependent
on the shipment levels of the Company's LaserAlign and Laser Lead Locator
products to several large OEM customers, and the significant decline in year
over year revenue in the first quarter reflects decreased purchases by such OEM
customers. The customer whose purchases constituted 31% of the Company's revenue
in the first quarter of 1996 purchased no product in the first quarter of 1997.
Although some OEM customers have increased their order rates in 1997, overall
sensor sales were down. The Company's largest customer, Juki Corporation,
accounted for 24% of revenues for the three months ended March 31, 1997, and the
five principal OEM sensor customers accounted for approximately 55% of revenues.
System revenues decreased 20% to $1.8 million during the three months ended
March 31, 1997 from the comparable period in 1996, and decreased 24% when
compared to the fourth quarter of 1996. During the first quarter of 1997 the
Company introduced two new generation solder paste measurement systems, the LSM2
and the CyberSentry 2000. The LSM2 started shipping in production volumes during
the first quarter, while production volume shipments of the CyberSentry 2000
will begin in the second quarter of 1997. The decrease in systems revenue during
the first quarter is partially due to this product line changeover, as certain
customers deferred purchases until the new systems were on the market. Sales of
other general measurement systems also decreased in the first quarter of 1997,
primarily as the result of pending changeovers in product lines later this year,
and a longer than anticipated sales cycle for the CyberScan Cobra introduced
during the fourth quarter of 1996.
International revenues comprised 74% and 67% of total revenues during the three
months ended March 31, 1997 and 1996, respectively. Revenues generated from
products used primarily for SMT production were approximately 85% of revenues
for the three months ended March 31, 1997 and 1996.
Substantially all of the Company's international sales are negotiated, invoiced
and paid in U.S. dollars. Changes in revenue levels have resulted from changes
in units shipped and new product introductions. The Company believes that
inflation has had no appreciable impact on operations.
COST OF REVENUES
Cost of revenues increased as a percent of total revenues to 48% during the
three month period ended March 31, 1997 compared to 46% during the comparable
period in 1996, but decreased from 49% in the fourth quarter of 1996. The
increase in cost of revenues during the first quarter of 1997 compared to the
first quarter of 1996, is primarily due to reduced revenues levels, and the
resulting lower base over which to leverage the fixed component of cost of
revenues, including additional costs associated with the Company occupying its
new facility since May 1996. In addition, changes in the revenue mix also has an
impact on cost of revenues. The decrease in cost of revenues from the fourth
quarter of 1996 was partially the result of increased revenue levels and also
due to strong sales of certain sensor products which carry higher margins.
RESEARCH AND DEVELOPMENT
Net research and development expenses increased 10% to $1.4 million during the
three month period ended March 31, 1997 compared to $1.3 million during the
comparable period in 1996. As a percentage of revenues, expenses have increased
to 20% during the three months ended March 31, 1997 from 15% during the
comparable period in 1996. Payments to the Company for customer funded research
and development is deferred and recognized as a reduction of research and
development expenses as costs are incurred. During the three months ended March
31, 1997 and 1996, $166,000 and $475,000 of customer funded research and
development was recognized as a reduction of research and development expense.
As of March 31, 1997, all deferred research and development has been recognized.
Research and development expenses during the first quarter of 1997 were
primarily focused on completion of the CyberSentry 2000 and the LSM2, which were
introduced in the first quarter of 1997, continuing development work on the
LaserAlign technology and on developing a new sensor and systems product for the
general measurement market to be introduced later in 1997. The Company
anticipates that the dollar level of expenditures in research and development,
excluding reductions for funded development, will remain fairly flat for the
remainder of 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 5% to $1.9 million during
the three month period ended March 31, 1997 compared to $1.8 million during the
comparable period in 1996. As a percentage of revenue, expenses have increased
from 21% in 1996 to 27% in 1997. The increase in selling, general and
administrative expenses during the first quarter of 1997 compared to the first
quarter of 1996 is primarily due to increased personnel and related costs
required to support the sales and service of the Company's product offerings.
The Company has added sales and service resources to support its end-user
systems business, an area which is expected to see growth in 1997 and make up a
larger portion of its revenue base. In addition, resources have been added to
the product marketing department, an area of focus for the Company during 1997.
The increase in expenses as a percentage of revenue is primarily due to the
reduced level of revenues over which to leverage those costs. The Company
anticipates that selling, general and administrative expenses will remain
relatively flat as a percentage of revenue, including legal costs associated
with the suit against Yamaha Motor Company, Ltd., for the remainder of 1997.
EFFECTIVE TAX RATE
The Company applied an effective rate of 32% during the three months ended March
31, 1997 and 31% during the same period in 1996. Benefits from the Company's
foreign sales corporation and the use of the research and experimentation tax
credit were primarily responsible for reducing the effective tax rate below the
statutory federal rate.
ORDER RATE AND BACKLOG
CyberOptics' order rate totaled $8.3 million during the three months ended March
31, 1997 compared to $7.6 million during the same period in 1996. Backlog
totaled $5.6 million and $6.0 million at March 31, 1997 and 1996, respectively.
The scheduled shipment of the March 31, 1997 backlog is as follows (In
thousands):
2nd Quarter 1997 $5,214
3rd Quarter 1997 408
--------
Total backlog $5,622
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and marketable securities increased to $37.5 million
as of March 31, 1997 from $37.3 million as of December 31, 1996, primarily as
the result of funds generated from operations of $808,000. The cash provided by
operations was partially offset by $561,000 used to repurchase common stock
during the first quarter of 1997. Marketable securities generally consist of
U.S. Government or U.S. Government agency obligations, with maturities of three
years or less. Working capital decreased to $29.2 million as of March 31, 1997
from $32.4 million as of December 31, 1996, primarily as the result of a greater
portion invested in marketable securities with maturities of over one year.
The Company generated $808,000 in cash from operations during the first three
months of 1997, primarily due to net income of $589,000, a decrease in other
current assets of $420,000 and an increase in accounts payable of $275,000.
These amounts were partially offset by an increase in inventory of $788,000
primarily as the result of inventory purchases to support the two new product
introductions during the first quarter of 1997. Investing activities used
$975,000 primarily due to the purchase of marketable securities, net of
maturities.
In June 1996, the Company announced that its board of directors authorized the
repurchase of up to 500,000 shares of CyberOptics' common stock for the purposes
of providing the necessary common stock for the Company's stock option and
employee stock purchase plans. During 1996, the Company repurchased all 500,000
shares at a cost of approximately $6.3 million. In December 1996, the Company's
board of directors authorized the repurchase of up to an additional 500,000
shares of CyberOptics common stock. During the first quarter of 1997, 41,000
shares were repurchased at a cost of $561,000. As of May 14, no additional
shares have been repurchased.
At the present time the Company has no material capital commitments. The Company
believes current working capital and anticipated funds from operations will be
adequate for anticipated operating needs.
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON 8-K
a. Exhibits
Exhibit 27--Financial Data Schedule (For SEC use only)
Exhibit 99--Forward Looking Statements Cautionary Statement
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CyberOptics Corporation
/s/ John D. Beagan
John D. Beagan, V.P. Operations and
acting CFO (Principal Financial Officer
and Duly Authorized Officer)
Dated: May 14, 1997
EXHIBIT 99
FORWARD LOOKING STATEMENTS
CAUTIONARY STATEMENT
Statements regarding the future prospects of the Company must be
evaluated in the context of a number of factors that may materially affect its
financial condition and results of operations. Disclosure of these factors is
intended to permit the Company to take advantage of the safe harbor provisions
of the PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Most of these factors
have been discussed in prior filings by the Company with the Securities and
Exchange Commission. Although the Company has attempted to list the factors that
it is currently aware may have an impact on its operations, other factors may in
the future prove to be important and the following list should not necessarily
be considered comprehensive.
INDUSTRY CONCENTRATION AND CYCLICALITY. Substantially all of the
Company's revenue is directly or indirectly related to capital expenditures in
the electronics industry. This industry is highly cyclical and has historically
experienced periodic downturns which often have had a severe effect on capital
expenditures. For the foreseeable future, the Company's operations will continue
to be dependent on the capital expenditures in this industry which, in turn, is
largely dependent on the market demand for products containing integrated
circuits. Although the Company's products have been, and continue to be, used in
a variety of industries outside the electronics industry, the Company's current
product development and marketing is focused on electronics and its business and
results of operations would be significantly and adversely affected by a
slowdown in this industry.
DEPENDENCE UPON PRINCIPAL OEM CUSTOMERS. The Company's revenue levels
continue to be largely dependent on the order rates of its large OEM customers.
The loss of, or a significant curtailment of purchases by, any one or more of
these OEM customers would have a material adverse effect on the Company's
results of operations.
DEPENDENCE ON OUTSIDE CONTRACTORS AND SUPPLIERS. The Company currently
contracts with third party assembly houses for a substantial portion of the
purchase and assembly of components of its products. Although the Company
endeavors to inspect and internally test most components prior to final
assembly, reliance on outside contractors reduces its control over quality and
delivery schedules. The failure by one or more of these subcontractors to
deliver quality components in a timely manner could have a material adverse
effect on the Company's results of operations. In addition, a number of the
components used in the Company's products are available from only a single
supplier or from a limited number of suppliers. Some of these components have
relatively long order cycles, in some cases over one year, and the timely
availability of these components to the Company is dependent on the Company's
ability to develop accurate forecasts of customer volume requirements. Any
interruption in or termination of supply of these components, or material change
in the purchase terms, including pricing, of any of these components, or a
reduction in their quality or reliability, could have a material adverse effect
on the Company's business and results of operations.
PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY. The Company relies
heavily on its proprietary hardware designs and software technology. Although
the Company uses a variety of methods to protect its technology, it relies most
heavily on patents and trade secrets. There can be no assurance that the steps
taken by the Company will be adequate to deter misappropriation of its
technology, that any patents issued to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
a competitive advantage to the Company. In addition, there remains the
possibility that others will "reverse engineer" the Company's products in order
to determine their method of operation and introduce competing products or that
others will develop competing technology independently. Any such adverse
circumstances could have a material adverse effect on the Company's results of
operations.
One of the Company's OEM customers, Yamaha Motor Company, Ltd., has
filed patent applications in Japan, the United States and several other foreign
jurisdictions on technology proprietary to the Company, or on applications of
such technology that the Company believes are incremental or obvious in a
practice know as "patent flooding." Several United States patents have been
issued to Yamaha on such technology. The Company has filed suit against Yamaha
in United States District Court for the District of Minnesota for theft of its
trade secrets, breach of contract and to transfer ownership of several of such
patents. The Company intends to vigorously pursue such litigation, but the costs
of this, and other action to protect its intellectual property, could have an
adverse effect on the Company's results of operations.
As the number of its products increases, the markets in which its
products are sold expands, and the functionality of those products grows and
overlaps with products offered by competitors, the Company believes that it may
become increasingly subject to infringement claims. Although the Company does
not believe any of its products or proprietary rights infringe the rights of
third parties, there can be no assurances that infringement claims will not be
asserted against the Company in the future or that any such claims will not
require the Company to enter into royalty arrangements or result in costly
litigation.
DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent upon the
technical expertise, management and leadership of Dr. Steven K. Case, President,
Chief Executive Officer and a director of the Company, as well as other members
of the Company's senior management team, many of whom would be difficult to
replace. Although the Company has a $5,000,000 key-man insurance policy on Dr.
Case and has retained other experienced and qualified senior managers, the loss
of the services Dr. Case or other key personnel would have a material adverse
effect on the Company.
TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT. The market for the
Company's products is characterized by rapidly changing technology. Accordingly,
the Company believes that its future success will depend upon its ability to
continue to develop and introduce new products with improved price and
performance. In order to develop such new products successfully, the Company is
dependent upon close relationships with its customers and their willingness to
share information about their requirements and participate in joint development
efforts with the Company. There can be no assurance that the Company's customers
will continue to provide it with timely access to such information or that the
Company will be able to develop and market such new products successfully and
respond effectively to technological changes or new product announcements by
others.
INTERNATIONAL REVENUE. In the years ended December 31, 1994, 1995, and
1996 and the three months ended March 31, 1997, sales of the Company's products
to customers outside the United States accounted for approximately 57%, 68%, 70%
and 74%, respectively, of the Company's revenue. The Company anticipates that
international revenue will continue to account for a significant portion of its
revenues. The Company's operating results are subject to the risks inherent in
international sales, including, but not limited to, various regulatory
requirements, political and economic changes and disruptions, transportation
delays, difficulties in staffing and managing foreign sales operations, and
potentially adverse tax consequences. In addition, fluctuations in exchange
rates may render the Company's products less competitive relative to local
product offerings. There can be no assurance that these factors will not have a
material adverse effect on the Company's future international sales and,
consequently, on the Company's operating results.
COMPETITION. The Company competes with other vendors of optical
sensors, with vendors of machine vision systems, and with the internal
engineering efforts of the Company's current or prospective customers, many of
which may have greater financial and other resources than the Company. There can
be no assurance that the Company will be able to compete successfully in the
future or that the Company will not be required to incur significant costs in
connection with its engineering research, development, marketing and customer
service efforts to remain competitive. Moreover, the Company's principal
customers operate within the electronics industry, which is highly competitive
and highly dependent upon its suppliers' ability to provide high quality, cost
efficient products. Competitive pressures may result in price erosion or other
factors which will adversely affect the Company's financial performance.
QUARTERLY FLUCTUATIONS. The Company has experienced quarterly
fluctuations in operating results and anticipates that these fluctuations will
continue. These fluctuations have been caused by various factors, including the
capital procurement practices of its customers and the electronics industry
generally, the timing and acceptance of new product introductions and
enhancements, and the timing of product shipments and marketing. Future
operating results may fluctuate as a result of these and other factors,
including the Company's ability to continue to develop innovative products, the
introduction of new products by the Company's competitors, the Company's product
and customer mix, the level of competition and overall trends in the economy.
POSSIBLE VOLATILITY OF STOCK PRICE. The Company believes that factors
such as the announcement of new products by the Company or its competitors,
market conditions in the electronics and precision measurement industries
generally and quarterly fluctuations in financial results could cause the market
price of the Common Stock to vary substantially. In recent years, the stock
market has experienced price and volume fluctuations that have particularly
affected the market prices for many high technology companies and which often
have been unrelated to the operating performance of such companies. The market
volatility may adversely affect the market price of the Company's Common Stock.
LITIGATION AND LITIGATION COSTS. The Company is currently engaged as
plaintiff in a lawsuit it filed in the Federal District Court in the State of
Minnesota against Yamaha Motor Company, Ltd. for fraud and theft of technology
related to its LaserAlign sensor and its applications. The Company is asking the
court to reassign several United States Patents that Yamaha obtained by falsely
claiming to be inventor, to award the Company damages for the harm Yamaha's
patents have already done and to order Yamaha to stop filing patents relating to
the Company's inventions. In response, Yamaha filed suit against the Company in
Japan claiming defamation and infringement of certain patents filed by Yamaha in
Japan.
The Company believes that the LaserAlign technology is central to its
business operations and intends to pursue its claims against Yamaha until it is
clear that the Company will be able to continue to utilize the technology that
the Company has created and market its products on the basis of such technology.
Such litigation is costly and will likely have an adverse impact on the
Company's results of operations during its pendency. Further, although the
Company believes that it has basis for collection of damages and its costs in
instituting such litigation, their can be no assurances that it will be awarded
such damages or costs or that it will be able to collect the same.
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</TABLE>
